Measuring Policy and Poverty: A New York City Perspective
The New York City Center for Economic Opportunity (CEO) was created by Mayor Michael Bloomberg to initiate and evaluate innovative approaches to addressing poverty in New York City. One of our assignments has been to develop an improved measure of poverty. This ambitious task has not only allowed us to get a better handle on the challenges facing New Yorkers, it has also yielded some profound insights into how government programs impact poverty.
To construct a better poverty measure, we revised both its income and threshold sides. The official poverty measure only considers pre-tax cash when tallying a family۪s resources. Transfer payments such as Social Security or SSI are counted in income, but tax credits and Food Stamp benefits are not. We widened the definition of income to include the effect of income and payroll taxes along with the cash value of in-kind benefits. The official poverty measure۪s threshold is uniform across the nation. We determined whether a family is poor by comparing its resources against a set of poverty thresholds that reflect New York City۪s high cost of living.
CEO issued its first poverty report in 2008, pioneering the use of the Census Bureau۪s American Community Survey to create a local poverty measure based on recommendations by the National Academy of Sciences. Since the onset of the Great Recession, our work has tracked how local labor market conditions and public policy initiatives have shaped the trend in the CEO poverty rate.
Last month, we released our fourth annual poverty report. Our most recent data for 2011 show that, after a two-year fall, the proportion of working-age New Yorkers holding a job rose, and the recession-related decline in annual earnings had ceased. The improving job market, expanded tax initiatives especially the payroll tax cut that took effect in 2011 and a continuing increase in food stamp enrollment pushed our measure of family resources higher. As a result, the 2011 CEO poverty rate was statistically unchanged from the prior year.
We have found that non-cash resources have played an increasingly important role in alleviating poverty in recent years. We compared trends in earnings (income from wages, salaries, and self-employment) to pre-tax cash (earnings plus cash transfer payments) and our own “CEO income” measure. The figure below plots these three metrics relative to their respective levels in 2008the recent high-water mark for earnings. By 2010, earned income had fallen to 85.4 percent of its 2008 level. Pre-tax cash experienced a similar decline to 91.9 percent of its 2008 level. CEO income, by contrast, held steady from 2008 to 2010. From 2010 to 2011, earnings and pre-tax cash were statistically unchanged, while CEO income rose.
CEO has been particularly interested in the effect of the federal stimulus programs on local poverty. The 2008 Economic Recovery Rebate, a key feature of the Bush administration۪s response to the onset of the recession, gave tax filers a one-time payment to boost their income. New and expanded tax credit programs, in addition to an increase in food stamp benefit levels, were also important elements of President Obama۪s 2009 American Recovery and Reinvestment Act. We wanted to know how successful these initiatives were in blunting the recession۪s impact. To identify their effectiveness, we have created hypothetical estimates of what the poverty rate would have been if they had not taken place. The figure below compares the path a hypothetical CEO poverty rate would have taken to trend in the actual CEO poverty rate.
The actual CEO poverty rate fell from 2007 to 2008, reflecting both the relatively late start of the economic contraction in New York City and the effects of the Bush rebate. By contrast, the hypothetical poverty rate climbed. From 2008 to 2010, both rates rose, but the increase in the actual poverty rate is decidedly less rapid than the jump in the hypothetical poverty rate. Comparing 2011 to 2007, the actual CEO poverty rate rose by 1.4 percentage points to 21.3 percent. By contrast, the hypothetical poverty rate would have climbed by 3.8 percentage points to 23.6 percent.
The contrasting trends in income measures and poverty rates illustrate some of the ways a more informative measure of poverty can shed light of the effect of policy on low-income families. Looking ahead, we expect that an improving job market in New York will bolster prospects for a decline in poverty. But the pickup in employment coincides with the end of the recession-related expansion of the federally-funded safety net.
In a policy environment focused on the federal budget deficit, poverty measures like CEO۪s can offer a credible gauge of the extent to which changes in anti-poverty programs are affecting America۪s low-income families.
Mark Levitan is the director of poverty research for the New York City Center for Economic Opportunity.
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